A Pair of Earnings Plays

By

Timothy Collins

| May 16, 2013 | 3:13 PM EDT

Ironic as it may seem, J.C. Penney (JCP) might actually get a pass on another earnings report today. Clearly, the 25% of the float that's sitting short doesn't want to see JCP get a pass, but I think this is a report where folks pick out any of the little good things, no matter how small, even if they are smaller than JCP's earnings. I am still holding JCP and waiting for the gap fill, but earnings present a significant risk. Still, I'm only looking to augment my long position. I am a buyer of 1x May 17 $18 calls, selling 3x May 17 $19.50 calls and long 1x May 17 $20 calls for a net cost around $0.18. Obviously, this places a cap on my shares, but a move from $18.75 to $20 would still net me an extra $0.32. Any result where JCP finishes over $18.20 up thru $20.25 will result in a slight uptick vs. staying long shares only. There is the downside possibility of $16 if JCP lays a giant egg; however, there are enough big names in it to keep me in it through earnings.

JCP
Source: StockCharts.com
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